AOL is tied up with Chinese red tape

MEDIA CENSORSHIP Since China joined the WTO in 2001, foreign media companies have learned that selling news and information is more complicated than they thought

BLOOMBERG , BEIJING

This file photo shows AOL Time Warner chief executive officer Richard Parsons addressing a gathering of AOL subscribersin New York. AOL shares have fallen 30 percent since the last shareholders meeting, while in China, the company joins its rivals in an as of yet fruitless attempt to turn their ventures into profit.

PHOTO: AFP

AOL Time Warner Inc foresaw boundless opportunity in China in June 2001, when then-chief executive Gerald Levin signed a US$200 million agreement to sell online services in the world's most populous nation.

"New businesses, new dreams and new possibilities will proliferate," Levin told a Beijing press conference, announcing AOL's Internet venture with Legend Group Ltd, China's No. 1 computer maker. The world's biggest media company by sales aimed to have the service up and running within six months, AOL International President Michael Lynton said at the time.

Almost two years later, AOL hasn't signed up a single paying subscriber in a nation of 59 million Web users. Links on the AOL-Legend Chinese-language Web site to services such as e-mail, instant messaging and Internet access lead nowhere: Users get a message saying the system is still being tested.

Foreign media companies such as AOL Time Warner, News Corp and Viacom Inc are still on the sidelines in China, even after the nation's 2001 entry to the WTO helped companies such as Volks-wagen AG and Motorola Inc make China their No. 2 markets behind their home countries.

Companies angling to sell Internet content, television programming and publications to China's 1.3 billion people are up against a Communist government that's reluctant to loosen its control over the flow of information, said Steve Marcopoto, president and managing director of Turner International Asia Pacific Ltd, an AOL television unit.

"We're not talking about cellphones or Buicks or toothpaste," Marcopoto said in an interview. "This is information, and it's highly sensitive in the Chinese market."

The Internet isn't the only area in which AOL Time Warner faces difficulty expanding within China. Turner's Mandarin-language TV network reaches just 2 million of China's 1.1 billion viewers.

Time magazine, AOL's flagship weekly, has been banned from Chinese newsstands for more than two years after publishing a story about the outlawed Falun Gong spiritual movement.

Piracy is also sapping sales: Bootleg DVD copies of films such as "Lord of the Rings: The Two Towers," released by AOL's Warner Bros studio, sell on Beijing streets for less than US$2.

Almost a decade after being allowed to introduce satellite-TV services in China, AOL Time Warner, News Corp and Viacom still have limited access to the country's households. Their sales of cable-TV programming are limited to one area of southern Guangdong Province bordering Hong Kong -- one of 31 Chinese Provinces.

In the rest of the country, they can offer satellite TV channels such as AOL's CNN and HBO only in foreign residential compounds, some hotels and select office buildings housing overseas companies.

AOL's setbacks in China come as the New York-based company's online service loses customers and faces accounting probes by the US Securities and Exchange Commission and Justice Department.

Shares of AOL have fallen more than 70 percent since America Online Inc bought Time Warner Inc in January 2001, and the company posted a US$98 billion loss last year.

Two of AOL's biggest investors -- California Public Employees' Retirement System and Capital Research & Management -- will vote against some of the company's directors, including its chairman, Stephen Case, at a shareholders' meeting this week, people familiar with the matter said last week.